The exchange rate of Renminbi, the Chinese currency, is
expected to appreciate by some five percent to US$1 for 7.44 yuan, according to
Xinhua Economic Analysis Report released Monday.
The report projected that the pace of RMB appreciation would be faster in the
first half of 2007 than in the second half.
Xinhua Economic Analysis
Reports are regular products by a team of more than 80 economic analysts under
Xinhua Economic Information Department. The latest issue of the reports reviewed
the country's ten key indices in the economic and financial sectors and made
projections on possible changes in the coming year.
In 2006, the value
of the RMB rose 3.28 percent against the dollar, with an accelerating trend from
0.66 percent in the first quarter to 1.15 percent in the fourth. The central
parity price closed at US$1 for 7.8141 yuan, the lowest of the year.
The
report held that the short-term RMB exchange rate will be influenced by the
fluctuation between the dollar and other currencies, but in the long run, it
depends on the progress of China's exchange rate reforms. Stable appreciation in
small steps is generally expected.
Earlier in December, China's State
Information Center predicted a three-four percent appreciation of the yuan in
2007, while the Bank of America and Deutsche Bank expected a rise of four-six
percent and 4.5 percent, respectively.
China's foreign exchange policy
is in line with the pace of China's economic development and the daily floating
band is enough to allow sufficient appreciation of the RMB, according to Chinese
economist Fan Gang.
However, some economists argue that the appreciation
of the RMB is a double-edged sword, as it will make Chinese exports more
expensive and therefore reduce export volume. Some export-driven small and
medium companies may not be able to survive and have to lay off employees.
"If China were coerced into really large appreciations of the RMB, it could
face the same deflationary fate as Japan in the 1980s and 1990s -- and all this
without reducing its trade surplus," said Ronald McKinnon in an article
published Wednesday by The Wall Street Journal.
Zhou Xiaochuan, governor
of the People's Bank of China, said that there was no timetable for a further
widening of the daily floating band between the RMB and the US dollar.
China
raised the value of yuan by two percent to 8.11 per US dollar and started
linking it to a basket of currencies on July 21 of 2005, and allowed it to move
0.3 percent above or below the parity rate against the US dollar.
The
report also projected that the country's gross domestic product (GDP) will grow
by 9.5 percent, lower than the estimated 10.5 percent for 2006. Major reasons
for the slowed pace include the decline of global economic growth and the
Chinese government's tighter macro-economic control aimed to curb overheated
sectors such as investment and housing.
It forecasts that fixed asset
investment will increase by 25 percent, compared with the estimated 26.6 percent
growth for 2006. However, the report cautioned that investment can easily
rebound for reasons of liquidity surplus, fast growing corporate profits and
local governments' investment impulse.
The growth of fixed asset
investment and credit both slowed down in 2006 as a result of hikes in the
benchmark lending interest rate, which was increased from 5.85 to 6.12 percent.
It will be less necessary for the central bank to further raise interest
rates in 2007, as too fast declines of investment growth will be no good to an
anticipated slack in economic growth, but the possibilities of interest rate
drops are even smaller, says the report.
The Chinese government has been
trying to curb runaway investment to let consumption contribute more to economic
growth, with measures to stimulate domestic demand such as improving the social
security system, raising minimum wages and protecting the interests of migrant
laborers.
Domestic consumption will grow faster in 2007, with retail
sales of consumer goods to rise 15 percent year on year, the report predicts.
The number is estimated to be 13.7 percent for 2006, 0.9 percentage points up
from 2005.
